An analysis by Daniel Kessler of the individual exchange that will be created by the Affordable Care Act (ACA) is based on a calculator at the Kaiser Family Foundation.

Kaiser predicts health coverage will cost $23,700 in 2014 for a family of four headed by a 55-year-oldliving in a high cost region. Premiums for health insurance sold in the exchange are capped at 9.5% of income for the families earning between 350% and 400% of poverty. There are no subsidies for families earning more than 400% of poverty. For example, premiums would be capped at $8,901 — resulting in a subsidy of $14,799 ($23,700-$8,901) for a family earning $93,699 (400% of poverty). But if the family earns $1 more ($93,700), they no longer qualify for a subsidy. Thus $1 in additional income results in a subsidy loss of $14,700; for an implicit tax rate of 1.47 million percent.

Comments (6)

The CBO estimates only something like 25 million people will get subsidized coverage in the individual exchange once it’s created in 2014. Findings from the Census Bureau suggest more than 110 million people will theoretically qualify for subsidies based on their income. I don’t believe the CBO understands the implications of a subsidy worth nearly $15,000 for families earning up to $94,000. If coverage costs nearly $30,000 for older couples in high-cost regions, firms will drop coverage, pay the $2,000 fine and let workers get a much bigger subsidy in the exchange. The number of people getting taxpayer subsidized coverage in the exchange will far exceed CBO estimates.

Devon: You’re missing the scam. Congress will be SHOCKED by the rational behavior of employers who drop coverage and pay the $2000 penalty, so Congress will conveniently increase the penalty so it becomes more expensive to pay it than provide insurance. Meanwhile, Congress will mandate additional insurance benefits, which will create new pressure to further increase the penalty. When this perpetual-motion machine crumbles, Congress will declare “market failure” and institute a single-payer system.